Which Credit Card Should You Pay Off First?

By Zach Buchenau

Last Updated: December 28, 2020

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Which Credit Card Should I Pay Off First? | Be The Budget

Are you trying to pay off multiple credit card balances? If so, there are a few considerations you should take into account. But of all those considerations, the first thing you need to decide is the order in which you will pay them off. So, which credit card should you pay off first?

In short, when paying off multiple credit cards, you should either pay the lowest balance first, or the highest interest rate first. By paying the lowest balance first, you can quickly reduce the number of debts you owe. Whereas, paying the highest interest rate first, may cost you less interest.

Ultimately, the order in which you pay off your credit cards comes down to personal preference. The most important thing is that you decide on a method and see it through. After all, choosing which card to pay off first doesn’t really matter if you don’t end up credit-card-debt-free in the end.

For that reason, in the rest of this guide, I am going to walk through the benefits and pitfalls of both methods. And to finish things off, I am going to reveal the method that we recommend most.

So, if you’re ready to pay off all those credit card balances, and free yourself from the burden of high interest debt, keep reading!

1. Paying Off Multiple Credit Cards: Highest Interest Rate First

Ok, for all you math nerds out there, this might be a pretty obvious statement, but if you decide to pay off your credit cards from high interest to low interest, you will probably save a little money in the long run.

For example, if you have one credit card balance with an interest rate of 25%, and another with an interest rate of 18%, then simple math tells us that paying off the card with the higher interest rate first makes the most sense. In the long run, regardless of the balances, you will spend less money.

Now, all that said, there are a couple downsides to paying off your credit cards from highest interest rate to lowest interest rate.

  1. It can be hard to stay motivated – Since your highest interest rate card might also carry a higher balance than your other cards, you may not end up retiring any of your debts until very late in your payoff journey. For that reason, you might not experience consistent wins (i.e. retiring debts) along the way. And for some people, that can make the process pretty dry, and even defeating.
  2. It can feel a bit messy – Since paying off your highest interest rate first isn’t quite as clean-cut as paying the lowest balance first, it can feel a little messy at times. So, if you are the kind of person that likes order and a clean path to victory, this method might not be right for you.

However, if the downsides don’t bother you at all, then there’s no two ways about it, this method will cost you less money in interest, and even save you a little bit of time.

And speaking of time, if this is the payoff method you choose, and you really want to step up your credit card payoff game, then we recommend pairing it with the Debt Avalanche Method.

Wait, what’s the Debt Avalanche Method?

The Debt Avalanche Method is a debt payoff strategy in which you pay off your debts in order from highest interest rate to lowest interest rate. Then, as you retire each debt, you roll the monthly payment you were making on it into the next lowest interest rate.

Over time, the extra money you put towards each successive debt begins to build. Then, before you know it, you are staring at a bunch of $0 balances, and a life completely free of debt.

And let me tell you, that is one of the most relieving financial moments you will ever experience!

which credit card should you pay off first? | Be The Budget

2. Paying Off Multiple Credit Cards: Lowest Balance First

Ok, so if you read through the downsides of paying off your high interest rate card first, and you want a different option, then paying off your low balance cards first might be just the ticket.

For one, the path is much easier to process, and, as I mentioned earlier, it is quite a bit cleaner.

Think about it like this: imagine you have five different credit cards with balances ranging from $300 to $2,000. Now, if your highest interest debt is the $2,000 balance, then it might be a few months before you retire any of your balances. And that might be a little defeating. On the other hand, if you attack your credit card balances from smallest to largest, you could probably retire a couple (if not a few) of your balances in that same amount of time.

Now, I don’t know about you, but for me, that just seems like a much more manageable process. Beyond that, the fewer credit cards you have to pay, the simpler your financial life becomes.

So, what are the downsides?

Well, as I mentioned in the last section, paying your credit cards from lowest balance to highest balance can cost you a little bit of extra money when it comes to interest. (Though, to be honest, in my experience, the difference is pretty minor.)

So, Which Method Do We Recommend?

If you’ve followed Be The Budget for any bit of time at all, then you probably know that my wife and I used the Debt Snowball Method to get completely out of debt. And I’m not just talking about credit card debt either. I’m talking about every single penny we owed.

And if I’m being completely honest, it was the key to our debt-free success. For one, the fact that we were able to retire our low balance debts quickly gave us a nice shot of motivation. Beyond that, with each debt we paid off, our financial life became less and less complex.

Think about it like this, with every debt we eliminated, it was one fewer line item on our budget; one fewer account to log into and make monthly payments; one fewer burden to carry.

So, while we might have ended up paying a little bit of extra interest, in the long run, the difference was so small that it didn’t really matter.

For all those reasons, I highly recommend paying off your credit cards from the lowest balance to the highest balance. In fact, I recommend using this method to pay off all your debt — not just your credit cards. It is simple, clean, and incredibly motivating once you get into it.

If you’re interested in paying off debt, be sure to check out a few of our other posts on the subject:

Final Thoughts

Paying off your credit card debt is one of the smartest financial steps you can take. And whether you decide to pay off your credit cards from high interest to low interest, or low balance to high balance, I wish you all sorts of success.

Having been through the process myself, I can tell you that, while it might not be easy, it is worth every bit of effort you put into it.

So, get after it, and ditch your credit card debt as soon as possible!

Zach Buchenau

About The Author:

Zach Buchenau is a self-proclaimed personal finance nerd. When he isn't writing about budgeting, getting out of debt, making extra money, and living a frugal life, you can find him building furniture, fly fishing, or developing websites. He is the co-founder of BeTheBudget, and Chipotle's most loyal customer.

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